News of Broadcom buying Brocade for an estimated $5.5 billion comes with some caveats: Most notably, chipmaker Broadcom isn’t planning to keep Brocade’s Ethernet business. So what will happen to it?
When announcing the deal, Broadcom made its plans to sell Brocade’s IP networking business clear. “Broadcom, with the support of Brocade, plans to divest Brocade’s IP Networking business, consisting of wireless and campus networking, data center switching and routing, and software networking solutions,” the press release states.
Broadcom sells silicon chips to networking vendors and doesn't want to compete with its customers by also selling Brocade’s networking hardware. Broadcom is buying Brocade primarily for its storage area network business, which it will integrate with its chips.
Broadcom CFO Thomas Krause told the Wall Street Journal: “We are confident that there will be a fair amount of interest” in flipping the rest of Brocade’s business. Analysts say customers of Brocade’s relatively healthy Ethernet business should not panic; there are a whole host of suitors for the networking business.
“I’m a little surprised Broadcom didn’t want these assets,” says Zeus Kerravala of ZK Research and a Network World blogger, noting that Cisco integrates silicon, hardware and software. “It’s a good set of products, it’s an extremely well run organization and it’s very profitable,” Kerravala says of Brocade’s Ethernet unit.
+ BACKGROUND: Broadcom bids billions for Brocade +
Share in the core networking business is a fickle thing, he adds: It’s difficult to grow organically by adding new customers, but it’s a ‘sticky’ business and hard to lose customers too. That makes vendors like Brocade attractive for suitors looking to expand their share.
Brocade also recently bought wireless networking provider Ruckus, which Kerravala says made the assets even more attractive. Long-time Brocade customers have been through this volatility before; Brocade got into the networking business by purchasing Foundry in 2008.
So who would buy these Brocade assets? It’s unclear at this point because no companies have made outright statements expressing interest, leaving analysts to mostly speculate.
Forrester networking analysts Andre Kindness believes the most likely outcome will be a private equity firm purchasing the assets. That would not be a bad thing for customers, he notes as typically these firms narrow the focus of the business and drive profitability.
Kerravala believes there could be a broader market though. Brocade is in somewhat of a tough position going up against Cisco and Hewlett Packard Enterprise, the market share leaders for data center networking equipment. There’s a whole host of other vendors competing for the remaining market share, including Extreme Networks, Alcatel Lucent (now owned by Nokia), Avaya (which is selling its networking business), Juniper, Mytel and others. Kerravala says there’s room for consolidation among these vendors.
Muddying the market somewhat is the potential sale of Avaya’s networking business by private equity firm Silver Lake. There could be an opportunity to combine these businesses, Kerravala notes.
Kindness also worries about the overall market for networking equipment. Data center networking sales haven’t been growing in recent quarters as more and more workloads move to hyperscale cloud data centers, he says. It’s imperative for networking vendors to find a differentiator. Brocade has pinned those hopes on integrating its equipment with the open source Open Daylight controller, and attempting to take advantage of the huge increase in network traffic thanks to the Internet of Things.
Kerravala is slightly more optimistic. “The commoditization of the network is overplayed,” he explains. “There are certainly changing trends in business between the cloud and mobility, but it’s still all reliant on networking. Networking vendors need to be able to add value to these new computing models.” Broadcom will be looking for a suitor wiling to do that with Brocade’s products.
This story, "Broadcom doesn't want all of Brocade, so what will happen to the leftover Ethernet business? " was originally published by Network World.